Imperatives of fixing the weak link in Nigeria’s power sector

For potential investors in Nigeria’s electricity value-chain, the challenge remains how to recoup their investments after service has been provided. This is because more than 50% of distributed power is consumed free-of-charge, even as the transmission network equally requires an upgrade to handle energy supply from the Gencos. For some operators, it is high time the country looked into the transmission section of the power value chain if the nation’s capacity utilisation will improve. FEMI ADEKOYA and KINGSLEY JEREMIAH write.

Nigeria has about 13 Giga-Watts (GW) of electricity generating capacity, out of which only about 40% is available and operational due to several constraints.

According to PwC, about 7% of the operational generation is lost across the transmission network. In general, there is a transmission capacity of 5GW, wherein close to 90% of transmitted power reaches electricity consumers through the Distribution Companies [DISCOs]; but these distributors encounter collection and commercial losses since less than 50% of electricity consumers pay for the power they consume.

Operators in the mini-grid sector note that investors can only invest in Nigeria’s grid if electricity is paid for by consumers. According to them, the problem with the country’s power is not from less privileged in the country but from government agencies and departments.

While there have been arguments about the weakest link in the power sector, there is a consensus that distribution and transmission capacities must increase and improve if electricity will be available to many households in a steady manner.

Since independence, Nigeria has made number of attempts to address the lapses in the power sector. Some of the recent attempts include the rehabilitation programme embarked upon in 1999, to overhaul the existing power infrastructure. National Integrated Power Project (NIPP) followed in 2004. This came shortly after the National Electric Power Policy (NEPP) of 2001, which later led to the Electric Power Sector Reform (EPSRA) Act of 2005, establishing the Nigerian Electricity Regulatory Commission (NERC).

Nigerians expected that power generation, transmission and distribution would significantly improve after the 2013 privatisation, unfortunately, the sector is currently in a state of uncertainty despite leaving the control of generation and distribution in the hands of private investors in order to ensure adequate, regular and stable electricity supply.

Indeed, to most stakeholders, challenges before the sector appear to have compounded more than they were when the government controlled the levers.

While government is still in charge of transmission, the Electric Power Sector Reform Act of 2005, unbundled the national power company into a series of 18 successor companies: six generation companies and 12 distribution companies covering all the 36 states.

The implementation of the Roadmap for Power Sector Reform of August 2010, (the Roadmap) led to the privatisation of the power sector on November 1, 2013, with the formal handover of the successor companies to private investors as six generation companies (GENCOs) and 11 distribution companies (DISCOs), and the establishment of the Transmission Company of Nigeria (TCN).

Instead of progress, the crumbling power sector has been enmeshed in a blame game, and most stakeholders are of the view that it was time to revisit the privatisation exercise.

And for these stakeholders, the challenges include, but not limited to structural arrangement, market operation, metering, weak infrastructure, market governance, capacity input, leadership, finance, stranded power, historical public sector inefficiency and gas related problem.

To Sam Amadi, pioneer NERC chairman, there has not been significant improvement in power delivery and growth in the sector’s capacity as expected, considering that the cost of power to consumers remained high and epileptic.

However, Amadi believes that the problem in the sector is not mainly legislative bottlenecks but mostly design and implementation failures, adding that there was a need to be bold and revise the design to align with institutional pathologies in the system and focus mostly on performance.

“But in terms of legislative bottlenecks. People have spoken of criminalizing energy theft. That should go together with wanton exploitation of consumer. What’s good for the geese is good for the gander. Secondly, the legislature may need to develop greater engagement with regulatory policies. The legislature has not been doing its job as regards legislative oversight. It does not go through the policies of NERC to ensure compliance with the EPSR Act,” Amadi said.

According to him, without effective legislative oversight, the regulator may slack or be captured by special interest.

He stated that oversight is not summoning regulator on behalf of the DisCos or unduly harassing regulators doing their job, adding that the major legislative constraints of the electricity sector is the lack of knowledge of legislators.

The Executive Secretary of Association of Power Generation Companies (APGC), Joy Ogaji, insisted that there are no loopholes in the sector’s regulation, stressing that what is missing is the lack of enforcement and implementation.

Ogaji, who had said there was need for transparency in the sector, especially in the terms of collection by DisCos noted that the law was adequate if implemented properly.

President, Nigeria Consumer Protection Network, Kunle Olubiyo, said here was urgent need for total overhaul of the Nigerian Electricity Sector, especially in terms holistic reform of the existing legal and institutional framework and

“There are also issues bordering on challenges and gaps in the area of fiscal and corporate governance. Accordingly, the enabling law that established Transmission Company (TCN Act) should be amended to address issues of grave concerns,” he said.

Olubiyo said TCN should be unbundled and broken down to Regional Operations and small pockets of regionally managed clusters of transmission infrastructure.

To him, the Market Operators presently under TCN at the moment should come by way of Markets Operators enabling law, adding that there was need for a separate body to manage the grip, which has remained epileptic.

Olubiyo also noted the need for a stand-alone enabling law for Nigerian Electricity Regulatory Commission (NERC), stressing that there was need to expunge NERC from the present Sector wide EPSR Act.
On his part, the Chief Executive Officer of Transmission Company of Nigeria (TCN), Usman Gur Mohammed, said that the DisCos should be recapitalised to raise funds, adding that government has also recapitalised TCN.

Contrary to insinuations that there is no synergy among power stakeholders, the TCN boss at the just-concluded Future Energy Conference, said there is collaboration in the value chain and they work together.

Mohammed revealed that most associations within the sector are managed by green horns that do not have technical knowhow about power.

When asked if recapitalisation will address the problems in the sector, he said: “You have to understand that in the power sector, each of the three parties, generation, transmission and distribution can bankrupt the other. For instance, if the Generation Companies (GenCos) do not perform their roles both transmission and distribution will become bankrupt.

“The same thing applies, if transmission cannot play its role, it means generation and distribution will be bankrupt. In the same vein, if the distribution companies cannot collect money from end users to fix their networks and distribute power to the people, they will bankrupt the other chains, transmission and generation.

“As at today, government is putting payment assurance to support GenCos while government is supporting TCN through budget and donor funding for it to remain afloat. This is because DisCos fail on their part in terms of fund. This cannot be sustainable hence government cannot continue to fund the power sector simple because a segment is not doing its job.

“The only way out is to inject efficiency into the last segment of the power sector. How do you inject efficiency? At first, you need the fund to fix the network. The networks of the DisCos that were privatized are largely what they are before and after they were sold. If you have a car that is being repaired for the past five years and you don’t change the engine oil, how do you expect that car to function properly? This is the problem we have”.

Head of Sales, East & West Africa, Clarion Energy, Ade Yesufu, said the power sector in Nigeria has enormous options for players if the sector can be put in proper perspective.

“Nigeria is the biggest economy in Africa without reliable power. Nigerians pay a lot for electricity directly or indirectly with over 90 million generator users. The country has huge population of generator users and highest importer of it in the world”, he added.

He disclosed that due diligence was not made by DisCos and government before the power sector was privatised, adding that the challenges were not known by both parties.

He however noted that a lot could be done to encourage private investments in the sector.

Market Research Specialist Greenville LNG, Pradipta Mitra, observed that the claim that electricity can’t be supplied nationwide would be erased when government promotes more investment to harness LNG in Nigeria, adding that if such projects can be replicated, Nigeria’s power problem would gradually be solved.

Mitra further explained that LNG offers huge cost savings as against other fossil fuel products, adding that the firm is already supplying LNG to many industrial customers, adding that 200 tankers have been deployed, with 100 more tankers underway.

President Women in Renewable Energy Association/Former President of the Council on Renewable Energy, Mrs. Anita Okuribido, said the biggest consumers of electricty, (ministries, departments and agencies) in the country are not willing to pay, adding that there is a need for smart energy delivery system in the energy value chain.